Legislation for the EU securities and derivatives markets, MiFID II research unbundling rules are set out in the new requirements. Enhancing what was introduced via MiFID in 2007, MiFID II takes effect on January 3, 2018.
Specifically in relation to research for corporate bond trading, it has been designed to:
- Mitigate conflicts of interest
- Ensure that research is not being offered as an inducement
- Enhance transparency & investor protection
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MiFID II research unbundling requirements apply to both sell and buy side investment firms.
Sell side firms:
- Must not induce clients to trade by bundling their own research with their execution services
- Must review & identify services that they provide which could be classed as research and therefore for which payment would be required
- Need to provide their clients unbundled costs of trading. They need to identify and charge separately for execution and research
Buy side firms:
Must make payments for research whilst also demonstrating that research is not an inducement.
Must provide better reporting to facilitate the payments which are made for research as well as demonstrating what the research is providing.
In a study carried out in January 2017 for Aeriandi, it was revealed that 17% of risk and compliance managers were unaware that a company could receive a cease and desist order for non-compliance with MiFID II. (Source: Information Age)
“To meet the requirements by the MiFID II deadline of January 2018, both buy and sell side firms must begin to act now”
Source: PWC, “The future of research”